I have purchased 2,000 shares of Gujarat NRE Coke at Rs 74 and am holding for the last 12 months. The stock fell by more than 50 per cent since then. Should I book loss or hold, please suggest? Sanjeev Khanna.
Gujarat NRE Coke is the largest non-captive manufacturer of met coke with an annual capacity of one million tonne. It has two plants and is in the process of adding a third in Dharwad, Karnataka. The last is expected to begin production by July 2007, taking the company's total capacity to 1.4 MTPA. It recently commissioned a steel plant (steel bars) and co-generation power plant in Kutch. This is likely to diversify its revenue base and de-risk its earnings in the long-term. The stock has been beaten down on account of Rs 7.95 crore loss in half year 2007. We expect change in the company’s fortune from here as the company acquired a Australian company, Zelos Resources NL, which is into mineral exploration and development having in its portfolio gold, coal, iron ore and base metal projects in Tasmania and South Australia. It had recently acquired the Catamaran coalfield in Tasmania. The company has also acquired two E&P blocks in the Canning basin in North West Australia for oil exploration. We expect the company to gain from the ongoing expansions and backward integration. The stock is available at a Price/Book of 1.6x. Thus, we suggest you to ‘hold’ the stock.
There are a lot of IPOs lined up this month. Which are the best of the following from a short-term view — Cinemax India, Technocraft Industries etc. Aseem Nagpal.
We would not be able to comment on all the stocks as the prospectus of all the IPOs are not available. But amongst those available, we recommend to subscribe the Cinemax India issue. Cinemax intends to raise a total of Rs 138 crore from the market and is in the process of setting up several theatres at various locations across India. As part of its expansion plans over the next two years, it plans to set up 19 theatres with a total seating capacity of 15,864 seats. Though the issue is priced at a premium to its peers, considering the fact that the company would be increasing its seating capacity by four time’s the current capacity, its revenues and profits would be growing at a very robust pace. The multiplex sector in India is still at a nascent stage of a strong growth path and we believe that Cinemax is well placed to capitalise on the available opportunities in the industry.
I have read some media reports that say that stock investments in 2007 may not give as much returns as they did over the last two years, even as the economy is expected to grow over 8 per cent. What are the factors that are likely to affect the market performance? P Kale, Mumbai.
We have seen over the last 2-3 years that a strong earnings growth by India Inc has helped the Indian markets perform exceedingly well. Part of the strong returns could also be attributed to the upward re-rating (P/E) of the Indian stock markets on the back of the strong inflows of both domestic and foreign money. However, while we continue to remain positive on the Indian economy going forward, rising interest rates and the higher base effect of 2006 would result in some moderation in growth rates. Further, with Indian markets having already been re-rated, we do not expect any upside on this basis. We expect firms to deliver 14 per cent-16 per cent CAGR for the next few years. Thus, an investor can make similar returns by investing in 2007 as well.